Einhorn Presses Case Against Apple

By

Jessica E. Lessin and

Telis Demos

Updated Feb. 21, 2013 7:48 p.m. ET

Greenlight Capital Inc. founder David Einhorn defended and detailed his plan for Apple Inc. to issue a new type of stock, in an attempt to rally shareholder support for his plan to get the company to return more cash to shareholders.

David Einhorn detailed his plan for Apple to return more cash to shareholders, in an attempt to rally its shareholders to support his plan for the company to issue a new type of preferred stock. Telis Demos reports on The News Hub. Photo: Reuters.

The remarks, made in an unusual public conference call, attempted to paint the new type of preferred stock—which he refers to as "iPrefs"—as reasonable and appealing to yield-hungry investors.

"It's not complicated. It's merely unfamiliar," he said.

He also used the call to blast the broader practice of technology companies building large cash reserves to protect themselves against unexpected downturns, or to fund possible acquisitions.

"Cash distributors can still be great growth businesses," he said.

Mr. Einhorn is urging Apple to start returning more of its $137 billion in cash to shareholders by distributing $47 billion in iPrefs, which he argues would also help it attract new types of investors.

His campaign also includes a lawsuit to block a proxy proposal that he has argued would make it harder for Apple to adopt his preferred-stock plan.

He said Thursday that each preferred share would have a face value of $50 and issue 50 cents per quarter in dividends as long as Apple wanted to keep paying them. Preferred shares are similar to common stock but typically carry no voting rights.

He said Apple could distribute as much as $236 billion of these securities, or 5 iPrefs for each common share outstanding, without crimping its ability to make acquisitions or requiring it to tap into its overseas cash.

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His push comes as investors of all stripes have hungered for higher-yielding investments in a low-interest-rate environment and have pursued creative variations of financial products that can generate yield. "For savers across the country, this product is desperately needed," said Mr. Einhorn.

An Apple spokesman declined to comment beyond CEO Tim Cook's earlier remarks that the company would consider the idea.

Mr. Einhorn also responded to critics of his plan who said that Apple would be better off with a more conventional approach to returning cash, such as paying a one-time dividend on its common stock or doing a large share buyback.

He said that issuing 5 iPrefs per share could unlock up to $150 in value per share, while a one-time dividend or stock buyback using all of Apple's cash would unlock only up to $89. That's in part because Apple would incur taxes bringing Apple's overseas cash into the U.S.

Apple shares closed Thursday at $446.06, down 0.6%.

As of December, Apple had $94.2 billion in cash and short-term equivalents held in its foreign subsidiaries, out of its total $137.1 billion of such holdings.

He also said that Apple's current plan of paying a regular divided and buying back some shares, which it announced last March, has not succeeded in adding additional value.

"The reality is that equity investors value companies using a number of metrics that have little to do with the common dividend yield," he said.

Mr. Einhorn first approached Apple about his preferred stock idea in May. Greenlight earlier this month sued to stop the vote on an Apple proxy proposal, which would require the company to get shareholder support before issuing preferred stock.

The complaint alleges that Apple has improperly bundled different proposals it wants to put to a shareholder vote at its annual meeting Feb 27., forcing Greenlight to vote against its own interests by lumping differing proposals into one.

Apple CEO Tim Cook has called the lawsuit a "silly sideshow" and said that Apple is considering Mr. Einhorn's proposal and ways to return more cash to shareholders.

So far, several large Apple shareholders, including the nation's largest public pension fund, have sided with Apple on the proposal, which would require the company to get shareholder support before issuing preferred stock.

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